The New York Times recently ran a piece called “How Did Economists Get it So Wrong?” The article is a brisk stroll through the intellectual heritage of economic theory in an effort to point out its developmental flaws. Here’s a snippet from the Times article that I think sums it up pretty well:

Yet [most economists] accepted the notion that investors and consumers are rational and that markets generally get it right.

Of course, there were exceptions to these trends: a few economists challenged the assumption of rational behavior, questioned the belief that financial markets can be trusted and pointed to the long history of financial crises that had devastating economic consequences. But they were swimming against the tide, unable to make much headway against a pervasive and, in retrospect, foolish complacency.

Profound. And there are lots of overtones in these few sentences supporting important themes on this blog. (For example, the Times article reads like a case study of my post on “The Absurdity of Certainty.” And as I pointed out in a recent post, the notion of an autonomous rational mind is a convenient contrivance, not an objective reality.)

The article first takes aim at “the notion that investors and consumers are rational” actors. Any economic theory that presumes human rationality may describe the economic activity of Utopia, but certainly not of the society we live in.

The author also asserts that trusting financial market simply as a matter of its past performance is foolish complacency. Spot on! Flashy displays of wealth more likely signal wanton exploitation than honest dealings.

So the short of it is: you can’t trust economists or the market machinery they build.